An intangible asset is an identifiable non‑monetary asset without physical substance.

An asset is identifiable if it either:

1. is separable, i.e. is capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, identifiable asset or liability, regardless of whether the entity intends to do so; or
2. arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.

An asset is a resource:

1. controlled by an entity as a result of past events; and
2. from which future economic benefits are expected to flow to the entity

HGB does not specifically define intangible assets.

Haufe Akademie defines intangible assets as: “non-physical, non-monetary assets that provide a company with economic benefits over an extended period of time. They are identifiable, independently assessable, and can be legally protected. Unlike tangible assets, they lack physical substance.”

Haufe further states that intangible assets have the following features (which are similar to IFRS):

• Non-physical substance : They are intangible but exist as legal or economic values.
• Identifiability : They can be individually identified and separated from other assets.
• Future economic benefits : They contribute to generating revenue or reducing costs.
• Control by the company : The company has the power to benefit from the asset and prevent third parties from accessing it.
• Acquisition or development : They can either be acquired for a fee or developed internally.

An intangible asset shall be recognised if:

• the item meets the definition of an intangible asset;
• it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and
• the cost of the asset can be measured reliably.

The probability recognition criterion relating to future economic benefits is always considered to be satisfied for separately acquired intangible assets (including intangible assets acquired in business combinations)

In addition, the cost of a separately acquired intangible asset can usually be measured reliably. This is particularly so when the purchase consideration is in the form of cash or other monetary assets. If an asset acquired in a business combination is separable or arises from contractual or other legal rights, sufficient information exists to measure reliably the fair value of the asset. Thus, the reliable measurement criterion is always considered to be satisfied for intangible assets acquired in business combinations.

In terms of HGB § 246, the annual financial statements must include all assets, debt obligations, accrued and deferred items, as well as the expenditures and earnings. Assets are to be reported on the balance sheet of the owner; where an asset is not to be allocated in economic terms to the owner, but to a different party instead, that party is to show the asset on its balance sheet.

Intangible assets acquired for consideration therefore must be capitalised in the balance sheet.

No intangible asset arising from research (or from the research phase of an internal project) shall be recognised. Expenditure on research (or on the research phase of an internal project) shall be recognised as an expense when it is incurred.

An intangible asset arising from development (or from the development phase of an internal project) shall be recognised if, and only if, an entity can demonstrate all of the following:

1. the technical feasibility of completing the intangible asset so that it will be available for use or sale.
2. its intention to complete the intangible asset and use or sell it.
3. its ability to use or sell the intangible asset.
4. how the intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset.
5. the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset.
6. its ability to measure reliably the expenditure attributable to the intangible asset during its development.

Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance shall not be recognised as intangible assets.

HGB § 248 (2) states that intangible assets forming part of the fixed assets that have been created by the undertaking itself may be posted as assets on the balance sheet. The following may not be reported: trademarks, mastheads, publishing titles, customer lists, in each case created by the undertaking itself, or comparable intangible assets forming part of the fixed assets.

There is therefore an option to either capitalise or expense internally generated intangible assets.

Capitalisation is only allowed if the internally generated intangible assets are identifiable and if it is probable that they will generate future economic benefits, except for, the intangible assets mentioned above, that are explicitly prohibited from capitalisation.

HGB § 255 (2) specifically states that the costs of research may not be included in the production cost of internally generated assets.

The term “development” designates the application of research results or of other knowledge to the new development of goods or processes or to the innovation of goods or processes by means of modifications of a material nature. The term “research” designates the independent and systematic search for new scientific or technical insights or experiences of a general nature, the technical usability and economic viability of which are fundamentally impossible to assess. Where it is impossible to distinguish research and development from one another in reliable fashion, they may not be posted as assets.

An intangible asset shall be measured initially at cost.

The cost of a separately acquired intangible asset comprises:

1. its purchase price, including import duties and non‑refundable purchase taxes, after deducting trade discounts and rebates; and
2. any directly attributable cost of preparing the asset for its intended use.

If an intangible asset is acquired in a business combination, the cost of that intangible asset is its fair value at the acquisition date in accordance with IFRS 3.

The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by management. Examples of directly attributable costs are:

1. costs of materials and services used or consumed in generating the intangible asset;
2. costs of employee benefits (as defined in IAS 19) arising from the generation of the intangible asset;
3. fees to register a legal right; and
4. amortisation of patents and licences that are used to generate the intangible asset.

IAS 23 specifies criteria for the recognition of interest as an element of the cost of an internally generated intangible asset.

HGB § 253 states that assets are to be recognised at their cost of acquisition or at their production cost.

The term “cost of acquisition” designates the expenditures incurred in order to acquire an asset and to bring it into an operational condition, insofar as it is possible to attribute such cost to the asset on an individual basis. The cost of acquisition also includes the incidental expenses as well as the expenses incurred subsequent to the acquisition. Where it is possible to attribute reductions in the acquisition price to the asset on an individual basis, they are to be deducted.

The term “production cost of an intangible asset created by the undertaking itself and forming part of the fixed assets” designates the expenditures incurred for its development and includes cost of materials, the manufacturing cost and the special expenses directly attributable to the manufactured goods, as well as a reasonable proportion of the materials overheads, manufacturing overheads and the attrition of the fixed assets’ value, insofar as such attrition is caused by the manufacturing process. In calculating the production cost, a reasonable proportion of the general administrative expenses as well as reasonable expenditures for social services of the operation, for voluntary employee benefits and for the company old-age pension scheme may be included in this item to the extent that they relate to the period of production.

Interest for third-party capital does not form part of the production cost. Interest for third-party capital used to finance the production of an asset may be recognised to the extent it relates to the period of production; in such event, the interest will be considered to constitute a production cost of the asset.

An entity shall choose either the cost model or the revaluation model as its accounting policy.

After initial recognition, an intangible asset shall be carried at its cost less any accumulated amortisation and any accumulated impairment losses in terms of the cost model.

In terms of the revaluation model, after initial recognition, an intangible asset shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated amortisation and any subsequent accumulated impairment losses. For the purpose of revaluations under this Standard, fair value shall be measured by reference to an active market. Revaluations shall be made with such regularity that at the end of the reporting period the carrying amount of the asset does not differ materially from its fair value.

The depreciable amount of an intangible asset with a finite useful life shall be allocated on a systematic basis over its useful life.

An intangible asset with an indefinite useful life shall not be amortised.

In reporting assets forming part of the fixed assets, the use of which is limited in time, the cost of acquisition or the production cost is to be reduced by scheduled depreciations. The schedule must allocate the cost of acquisition or production cost to those financial years in which it foreseeably will be possible to use the asset. If it is not possible, in exceptional cases, to reliably estimate the foreseeable useful life of an intangible asset created by the undertaking itself and forming part of the fixed assets, then the schedule is to provide for a depreciation of the production cost over a period of ten years.

Unscheduled depreciations are to be performed for these assets if a permanent impairment of their value is to be expected, in order to recognise them at the lower value attributable to them as per the balance sheet date. A value recognised at a lower rate may not be upheld if the grounds for which it was applied have ceased to exist.

Revaluations of intangible assets to amounts exceeding historical costs are not permitted under German GAAP.